Underwriting

Underwriting is the comprehensive analysis and risk assessment process determining whether to proceed with a property acquisition and at what price, terms, and structure.

Underwriting ComponentAnalysis
Market analysisSupply, demand, trends, comparables
Property analysisCondition, location, income potential
Financial analysisNOI, cash flows, returns, sensitivities
Risk assessmentIdentify and quantify all risk factors
Structure optimizationDebt, equity, terms, partners
Decision recommendationGo/no-go, price, conditions
Underwriting StandardsTypical Requirement
Minimum IRR hurdle8% to 12% for core, 15%+ for value-add
DSCR minimum1.25x for stabilized properties
Maximum LTV75% residential, 65% commercial
Occupancy assumption90% to 95% stabilized
Exit cap rateEntry plus 0.25% to 0.5%


Related Terms

Due DiligenceInternal Rate of Return (IRR)IRR Sensitivity AnalysisRisk Analysis Investment Modeling

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